Daily roundup of research and analysis from The Globe and Mail’s market strategist Scott Barlow
BMO chief economist Doug Porter made an important observation about Canadian monetary policy (in bold)
“Let’s look at roughly the same set of metrics for Canada —the overnight rate and one measure of core CPI (median, which is one of the two the BoC still trusts). In contrast to the U.S., short -term rates in Canada at 4.5 per cent are still below all major measures of core. And, yet, the Bank is certainly signaling ‘That’s all folks!.’ Note the key difference between this chart and the similar effort for the U.S. —Canadian real rates never went negative prior to the financial crisis, and they never returned to positive terrain after 2008. (They almost got to zero in 2001, and then in late 2018, for a cup of coffee or so in both cases.) The Bank [of Canada] believes that high household debt in Canada means that rates won’t need to turn positive to quell inflation. We’ll see.”
“BMO: “The Bank [of Canada] believes that high household debt in Canada means that rates won’t need to turn positive to quell inflation”” – (research excerpt) Twitter
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Also from BMO, chief equity strategist Brian Belski reaffirmed his belief in dividend growth stocks as a preferred strategy in Canada,
“Despite the slight underperformance year to date, we believe income-based strategies remain well-positioned to outperform again in 2023, particularly as the market struggles with the end of the interest rate tightening cycle, elevated but declining inflationary levels, and recession risk. While our work shows S&P/TSX dividend payers can outperform in many market environments, including periods when the TSX is up over 10 per cent year-over-year, these dividend-based strategies typically post some of their best relative performance when inflation is above the three-year average and falling – like it is now.”
Mr. Belksi screened the universe for stocks already paying a dividend below the free cash flow yield, and with dividend payout ratios below the index average.
The resulting list of about 50 stocks included prominent, outperform-rated names (by BMO analysts) like ARC Resources, Alimentation Couche-Tard, Boardwalk REIT, CCL Industries, Constellation Software, Cenovus Energy, Dollarama, Enerplus Corp., Hudbay Minerals, Imperial Oil Ltd., Nutrien Ltd., Pason Systems, and Waste Connections Inc.
“BMO: Dividend growth screen for TSX” – (full table) Twitter
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The research department at BofA Securities invited a special foreign policy guest, McCain Institute executive director Dr. Evelyn Farkas, to discuss the likely path of events in the Ukraine,
“Dr. Farkas outlined three potential paths the conflict in Ukraine may take in the coming months. The first is a scenario in which Putin wins, which Dr. Farkas deems the most dangerous scenario as a victory would likely embolden Putin to challenge the territorial integrity of Georgia and Moldova, and ultimately spread the war all over Europe. In the second scenario, neither side becomes a decisive winner, and the conflict enters a stalemate. Dr. Farkas sees this scenario as most likely, however notes that in this case the West is likely to increase aide to Ukraine allowing Ukraine to take the offensive. The third scenario involves Russia pulling out of Ukraine with Putin controlling the Russian media to declare a “victory”. Again, Dr. Farkas sees this scenario as unlikely given the current state of play and believes that Putin may only be successful in this strategy if he has a recent military victory to back up the withdrawal”
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Diversion: “If you’re having a bad day, watch this Sesame Street version of the Beastie Boys’ “Sabotage” and things will be all right” – A Journal of Musical Things
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